The Hindu Business Line : `Insurance is long-term savings'

The Finance Minister, Mr P. Chidambaram, today called for creation of an informed public opinion on financial sector reforms in the absence of political consensus on the issue.

Political parties are unable to reach a consensus on key aspects of insurance and pensions reforms, a situation that the government wants resolved. The formation of a public opinion will help completion of a crucial but unfinished task, he said. The Finance Minister, who was attending the centenary celebrations of National Insurance Co, underlined the importance of taking the message of reforms across the nation so that India becomes one of the best insured countries in the world.

Mr Chidambaram's prescription is part of a three-pronged strategy — "three messages", — that he thought should be pursued . The strategy might be seen in the context of the reforms that have already been carried out in India as well as the gaps that have not been bridged so far.

In the first message, he said the insurance sector is markedly under-developed in India. Considering all non-life companies, only four crore policies are issued. In a country of 1.1 billion people, this is a very small number. Most houses and businesses are not insured. The need, therefore, is to roll out more insurance products in order to widen coverage.

Secondly, the total contribution of non-life insurance companies is 0.65 per cent the country's GDP. The world average, however, is 3.43 per cent. Payment of insurance premia amounts to long-term savings, while bank deposits are short-term in nature. More people must save for the long term. Also, this will deepen the financial markets.

Finally, the task of insurance and pensions reforms is clearly unfinished. Till 2040, India will have a vast population of youth. After this, the trend will change and the country will see the emergence of an ageing society. Reforms in India must be completed now, well before the trend reverses.

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